The fields of law, accounting and valuation are only continuing to become more complex. Given the overlap in these areas of specialty, it is increasingly important for attorneys to have an understanding of the accounting, tax and valuation effects of the legal agreements they draft. Armed with this knowledge, lawyers can produce the intended outcome for their clients and minimize unintentional consequences and compliance burdens. If you would like to download our full eBook, which includes all of the blogs in this series, you can do so here.
Mergers and Acquisitions – Takeaways and Suggestions
The purchase price often gets the most focus in an M&A deal. However, there are some unique accounting and valuation issues regarding purchase price allocations and earnouts that may be impacted by the structure of the purchase agreement. Proactively bringing these to the forefront and addressing them with your clients early in the transaction process can help minimize surprises and accounting compliance issues after the deal closes. A few of the key takeaways and suggestions to keep in mind when drafting M&A agreements are:
- Make your clients aware of the “hidden” accounting and valuation requirements for business combinations and earnouts
- Remember that the estimated values assigned to intangible assets in a purchase agreement are unlikely to be consistent with the values determined by a valuation expert
- Alert clients to the fact that earnouts need to be valued as of the transaction date and included as part of the purchase price for accounting purposes
- Remember that “earnout” payments to certain individuals that are contingent on their continued employment must be expensed over the required service period instead of being included as a component of the purchase price
- Discuss the fact that an earnout that lasts multiple years will require revaluation every reporting period until settled
Continue reading about the key accounting, tax and valuation considerations of buy-sell agreements in our e-book: Drafting Considerations for Attorneys: Buy-Sell Agreements, Accounting, Tax and Valuation Issues. Click here to download your free copy. For additional information about Skoda Minotti’s Merger and Acquisition Valuation Services, Contact Sean Saari at 440-449-6800.